16 March 2023
Yesterday, the Chancellor of the Exchequer (the UK Finance Minister) delivered the Spring budget (financial statement) to the UK parliament.
As expected, the main topics in the budget were the cost of living crisis and growing the economy. There was a focus on investment and encouraging people to return to the workforce, through measured changes to certain rules relating to pensions and increased support for childcare. However, we also had some welcome updates for UK tax-advantaged share plans: the announcement of a review into the tax- advantaged all-employee save as you earn plans (SAYE) and share incentive plans (SIPs), as well as tweaks to the rules relating to Enterprise Management Incentive (EMI) plans.
1. SAYE and SIPs: a new consultation on the all-employee SAYE and SIPs was announced in the 2023 Budget Report. Following lobbying by the share plans industry to encourage the Government to review these plans, the announcement was very welcome. The Government will be launching a call for evidence on SAYE and SIPs, to consider opportunities to improve and simplify these plans.
2. EMI plans: a consultation was launched in 2020 to consider whether these tax-advantaged employee option plans (currently only available to smaller businesses, and subject to certain qualifying criteria) should be made more widely available. The consultation closed on 26 May 2021 and the Summary of Responses was published yesterday (here). Key measures:
- from April 2023, the requirement for the issuing company to set out details of share restrictions within an EMI option agreement and the requirement for the participating employee to sign a working time declaration will be removed; and
- from April 2024, the Government will extend the deadline for a company to notify HMRC of the grant of an EMI option from 92 days following grant to the 6 July following the end of the tax year.
3. Pension allowances: pensions are not a share plans related issue but they form an important part of the package of typical employment related benefits and do (or should) have an impact on employees’ financial planning. The increase of the annual cap on tax free contributions to pensions, from £40,00 to £60,000 in any tax year, was expected. The abolition of the pension lifetime allowance (LTA), which limits the value of a personal pension pot, was not. The LTA means people incur tax charges if they accumulate more than £1,073,100 pension contributions over their lifetime, but this will now be abolished with effect from 6 April 2023. This was a surprise as only an increase in the LTA was anticipated. Further pension related limits (the Money Purchase Annual Allowance and limits relating to the tapering of the annual allowance) will also increase from 6 April 2023.
Previously announced Share Plans Updates: these were not new in the Budget, but as a reminder given the developments above:
- Company Share Option Plan (CSOP): changes already announced include a doubling of the CSOP limit to £60,000 and the removal of some of the share class restrictions which have previously made it harder for some, mainly unlisted, companies to qualify. This change is expected to be included in the Finance Bill which will be published on 23 March.
- SAYE: as set out in our alert last year (here), we are also expecting an announcement on the SAYE bonus rate and this is likely to come in the next few weeks.
Other previously announced changes to tax rates and allowances: the Budget helpfully did not introduce further changes to the Autumn statement position and therefore the following will take effect on 6 April:
- Income tax: the top 45% additional rate of income tax will be paid on earnings over £125,140 instead of £150,000. A freeze for the personal allowance and higher rate income tax thresholds until April 2028 was confirmed, which means as wages rise, millions of people will pay more in tax.
- Capital gains tax: the individual capital gains tax (CGT) annual allowance is cut from the current £12,300 to £6,000. This will fall to £3,000 in April 2024.
- Dividend tax: the dividend allowance is halved from £2,000 to £1,000 and will be halved again to £500 from April 2024.
- Social security: the main upper national insurance contributions thresholds are frozen until April 2028. The secondary threshold (at which employers start to pay secondary contributions) will also be frozen for the same period.
- Corporation tax: the top rate of corporation tax will be increased from 19% to 25%.
It is exciting to see the announcement of a consultation on changes to SAYE and SIPs in the Budget. ProShare, the employee share plan industry body, has been lobbying hard for the past few years to encourage the Government to focus on reform of all-employee share plans to increase their effectiveness, so we are delighted to see their efforts recognised. As ProShare have said, this is a huge step forward in the ‘quest to widen participation in the SIP and SAYE, and ensure these key plans remain relevant and attractive to both employers and employees for decades to come’. We at Tapestry will continue to work with industry bodies, clients and friends to help to make these popular plans more accessible and more effective.
For companies operating EMI plans, and those acquiring businesses with EMI options in place, the relaxation of certain administrative requirements is good news and will assist both in grant processes as well as potentially in a due diligence context for corporate events.
As the previously announced tax measures come into force in April, companies may wish to revisit their share plans to make sure not only the plans themselves but also, we suggest, the communications made to employees about the plans, are fit for purpose. Clear, effective and relevant communications are even more critical than ever. Guidance and education, particularly in relation to the reduction in the CGT annual allowance, will be especially important. For example, information relating to SAYE share sales, which may now more easily attract CGT following SAYE maturities, should be looked at closely to ensure it is clear and helpful. The increase in the CSOP personal limit to £60,000, which should make CSOPs a much more attractive form of tax efficient incentive, means companies may wish to ensure they take full use of this increased scope and explain their use clearly.
If you have any questions on any of the matters raised in this alert, please do contact us and we would be happy to help
Chris Fallon & Sharon Thwaites